New rulings – distributing income to adult children
For many years, it has been common practice by all business owners and investors who use Family (Discretionary) Trusts to look to spread trust income across family member beneficiaries.
These trust distributions are often made to adult children for the purposes of asset protection, estate planning and tax reduction.
ATO Taxpayer Alert TA 2022/1
On the 23rd of February 2022, the ATO issued Taxpayer Alert TA 2022/1 by stating that:
Parents who make trust distributions to their adult children (over 18 years of age) and then arrange for their children to give the distribution back to them are only doing this to reduce tax.
If the ATO believes this is taking place, the trust distribution will be taxed to the trustee of the trust (at the top marginal rate of 47%) rather than the beneficiary to whom it was intended.
The ATO have stated that they can go back as far as the 2015 tax year to review trust distributions and apply the 47% tax rate for trust distributions where they believe the main aim was to reduce tax.
What do you need to do about the new ATO Tax Rulings for Family Trusts?
There are different levels of risk associated with different tax planning strategies that involve trust distributions, and the ATO has classified these risks as white, green, blue and red.
If you currently operate within a family trust business structure, it’s vital to review your 2022 estimated taxable income for your entire family group, including any companies and trusts.
We strongly suggest booking in for tax planning, so that we can provide you with an Estimated Tax Payable report with your planned trust distributions, without breaching any of the new ATO rulings
If you haven’t yet booked in for tax planning, please book via the link below:
